JP Morgan Best Equity Ideas 2014
JP Morgan Best Equity Ideas 2014
JP Morgan Best Equity Ideas 2014
21 February 2014
Director of Asia Pacific Equity Research, Asia Technical Analysis Research Sunil Garg
AC
Bloomberg 1157 HK HMCL IN ISAT IJ MAXIS MK GLO PM FEHT SP 028050 KS 4904 TT TCAP TB 489 HK 097950 KS 2301 TT IIB IN GENS SP 1157 HK DANG US ACEM IN OSH AU 011170 KS 303 HK 3481 TT MAXIS MK 1101 HK 2727 HK
Changsha Zoomlion Heavy Industry Hero Motocorp Ltd. PT Indosat Tbk Maxis Berhad Globe Telecom Far East Hospitality Trust Samsung Engineering Far EasTone Telecom Thanachart Capital DongFeng Motor Co., Ltd. CJ Cheiljedang Lite-On Technology Corporation IndusInd Bank Genting Singapore Changsha Zoomlion Heavy Industry Dangdang Ambuja Cements Limited Oil Search Lotte Chemical Corp VTech Holdings Innolux Corporation Maxis Berhad China Rongsheng Heavy Industries Group Shanghai Electric Group Company Limited
See page 57 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. In the United States, this information is available only to persons who have received the proper option risk disclosure documents. Please contact your J.P. Morgan representative or visit http://www.optionsclearing.com/publications/risks/riskstoc.pdf. www.jpmorganmarkets.com
11670 160000 6734 155000 3043 2797 25402 3139 1814 15893 8075 1327 11755 4283 9.8 85 45000 10 3.8 5.25 7 0.7 26.6 2.2
Table of Contents
Emerging markets and Asia Pacific ex-Japan equity strategy, Adrian Mowat / Rajiv Batra ......................................5 Asia Pacific Equity Derivatives Strategy, Tony Lee ..............6
Country relative performance in US$ (MSCI AC Asia Pacific ex JP)
Countries China, Michael Yu...................................................................10 India, Bharat Iyer ....................................................................11 Indonesia, Aditya Srinath ......................................................12 Malaysia, Hoy Kit Mak ............................................................13 Philippines, Jeanette Yutan...................................................14 Singapore, James Sullivan ....................................................15
South Korea, Scott Seo..........................................................16 Taiwan, Alvin Kwock ..............................................................17 Thailand, Anne Jirajariyavech ...............................................18
Sectors Autos, Nick Lai........................................................................20 Consumer, Ebru Sener...........................................................21 Emerging Technology, Alvin Kwock.....................................22 Financials, Josh Klaczek .......................................................23 Gaming and Leisure, Kenneth Fong .....................................24 Infrastructure & Industrials, Karen Li ...................................25 Internet, Alex Yao ...................................................................26 Metals, Mining, and Materials, Daniel Kang .........................27 Oil and Gas, Scott Darling .....................................................28 Refining and Chemicals, Samuel Lee ...................................29 SMID-Caps, Leon Chik ...........................................................30 Technology, JJ Park...............................................................31 Telecommunications & Media, James Sullivan ...................32 Transportation, Corrine Png..................................................33 Utilities & Power Equipment, Boris Kan...............................34 ITV&R.......................................................................................35 Team List.................................................................................55
Stock baskets
APxJ Long Global demand (JPHAPGDM <Index>) Cheap domestic growth (JPHAPDGR <Index>) Downgrade dogs (JPHAPDOG <Index>) China Reform beneficiaries (JPHCHRFB <Index>) Reform sufferers (JPHCHRFS <Index>) Thematic growth (JPHCHTGW <Index>) 7% growth floor winners (JPHCHGFW <Index>)
Country Recommendations Overweight: India, Taiwan, Korea, Thailand, Indonesia and the Philippines Underweight: China, Hong Kong and Singapore
Key Trades
EM joins the equity bull market Value outperforms (Korea, Taiwan) Broadening global growth (IT, Korean autos) Expensive new and value trap old China
APxJ Heat-map: Key sectors in country recommendations OW: India, Taiwan, Korea, Thailand, Indonesia and the Philippines UW: China, Hong Kong and Singapore
Asia Pacific ex-Japan Equity Strategy Heat Map
Australia CS Aus. Indus Australia Energy Australia Others Australia Materials Australia Banks Korea CD Australia Fin. Korea Others Ex banks Korea IT Korea Financials Taiwan IT HK Indust. HK CD HK Utilities HK Others HK Financials Malaysia
Korea Ind Singapore India Others China CD Financials China Others China CS China IT Taiw. Others China Banks China Indus. India Energy Sing. Indus. China China Fin ex China Tawian India Fin. Sing. Others Energy Banks Telecom Financials India IT Philippines
Indonesia
Thailand
Source: MSCI, Datastream, J.P. Morgan Note: Red Indicates UW, green OW and white Neutral. Area of the sector indicates weight in MSCI APxJ.
Tony SK Lee AC
As the market rebounded strongly and recovered most of the January sell-off, equity volatility has come off across the globe. In Asia, Taiwan equity volatility showed up on our radar again as TWSE short-dated volatility approached its historic low briefly observed in December 2013. TWSE 3M 105% implied volatility, for example, is trading at 11.2%, a 0.4% percentile level based on the past 10Y data (Figure 2). Our Asia Pacific strategist Adrian Mowat highlights in his recent report the accelerating export growth from EMs and re-iterates his preference on DM growth exposure via OW in Korea, Taiwan and India. Particularly in Taiwan, the January manufacturing PMI rose further to 55.5 (vs 55.2 in December), registering at the highest level since April 2011 and the sixth consecutive month above the 50 threshold. With improving DM demand supporting Taiwan economy, our economists forecast 4.5% full-year 2014 GDP growth for Taiwan (vs 2.2% in 2013). Market sentiment seems to be improving in technology with better than expected 4Q earnings so far in Taiwan and recent strength in the semiconductor sector - note the sharp rally in the Philadelphia Semiconductor Index (Figure 1). Also recall favorable seasonality for equities overall in February-April (Figure 3). Hence we suggest accumulating upside exposure in Taiwan equities via options taking advantage of historic low volatility. Table 1summarizes the indicative cost of TWSE short-dated upside option strategies. To further cheapen the cost, investors can consider worst-of calls on TWSE and KOSPI 200. KOSPI 200 volatility also remains near historical lows (3M 105% volatility at 13.5%, a 1.0% percentile based on the past 10Y data).
Table 1: Indicative pricing of TWSE short-dated upside option strategies
Vanilla Calls TWSE KOSPI 200 0.82% 1.49% 0.66% 1.32% Worst-of Calls TWSE & KOSPI 200 Avg savings vs vanilla 0.69% -40% 0.55% -44%
2M 102.5% 3M 105%
Source: J.P. Morgan.
Figure 3: Historically TWSE performed best in Dec followed by Feb, Apr and Mar
Average Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec KOSPI2 -1.2% 1.1% 2.4% 2.5% -1.1% -1.5% 3.3% -1.0% 3.8% -2.1% 1.0% 3.0% TWSE -2.2% 3.2% 1.6% 2.0% 0.3% -1.8% 0.4% -1.4% 1.1% -1.9% -0.2% 3.8% NIFTY -1.7% -1.1% 2.2% 3.3% -0.6% 0.0% 2.9% -0.1% 5.6% -0.2% 1.8% 3.4% HSI HSCEI AS51 NKY SPX SX5E -1.7% -2.3% -0.8% -1.8% -0.9% -1.3% 1.2% 2.8% 0.7% 1.6% -0.2% -0.7% -1.8% -0.4% 1.4% 2.0% 1.9% 0.5% 3.7% 2.1% 1.6% 2.1% 2.1% 1.7% -0.9% 0.0% -1.8% -2.1% -0.3% -1.5% -0.4% -0.8% -0.4% 1.1% -1.3% -0.9% 4.2% 4.4% 1.2% -0.5% 1.5% 1.8% -1.3% -2.8% 1.3% -1.5% -0.4% -1.1% 1.7% 1.7% 1.0% 0.3% 0.9% 1.2% 1.6% 2.7% 0.8% -2.2% 0.2% 0.7% 0.1% 2.2% -0.7% 1.3% 0.5% -0.6% 1.0% 3.0% 1.5% 5.1% 1.7% 2.4%
Put Spread. The buyer of a put spread risks losing 100% of the premium paid. The buyer of higher-ratio put spread has unlimited downside below the lower strike (down to zero), dependent on the number of lower-struck puts sold. The maximum gain is limited to the spread between the two put strikes, when the underlying is at the lower strike. Investors who own the underlying asset will have downside protection between the higher-strike put and the lower-strike put. However, should the underlying assets price fall below the strike price of the lower-strike put, investors regain exposure to the underlying asset, and this exposure is multiplied by the number of puts sold. Call Spread. The buyer risks losing 100% of the premium paid. The gain is limited to the spread between the two strike prices. The seller of a call spread risks losing an amount equal to the spread between the two call strikes less the net premium received. By selling a covered call spread, the investor remains exposed to the downside of the underlying asset and gives up the spread between the two call strikes should the underlying asset rally. Butterfly Spread. A butterfly spread consists of two spreads established simultaneously one a bull spread and the other a bear spread. The resulting position is neutral, that is, the investor will profit if the underlying is stable. Butterfly spreads are established at a net debit. The maximum profit will occur at the middle strike price; the maximum loss is the net debit. Pricing Is Illustrative Only: Prices quoted in the above trade ideas are our estimate of current market levels, and are not indicative trading levels
Countries
9
China
Market outlook: China economic growth momentum has been softening since 4Q13. JPM forecasts China GDP growth of 7.4% in 2014 (versus 7.7% in 2013), based on the assumption of a policy shift from stabilizing growth to structural reform. We look for relatively stable consumption growth and a moderate improvement in exports. The downside is a slowdown in fixed investment attributable to lingering manufacturing overcapacity, tighter local government financing conditions and slowing in the housing market. We expect policy rates to be kept on hold throughout 2014, but credit growth (TSF) to slow from about 18% in 2013 to about 16% in 2014. Volatility in the interbank market will likely continue. Investment strategy: We see a short-term buying opportunity for China equities, based on seasonality (NBS PMIs have typically been significantly higher in March and April) and all-time low valuations (12m forward P/E of 8x). We expect a 15-20% market rebound (implied 10x of P/E) in the coming spring season, when growth stabilizes and the markets focus switches to structural reforms during the two sessions (NPC and CPPCC) in March. For short-term investors, we recommend severely corrected stocks (mainly Chinese banks), on the back of tough valuations, high dividend yields and high ROE. For long-term investors, we continue to recommend
66.6 84.0 6.8 6.6 9.4 9.8 114.5 88.0 580.0 580.0 5.8 8.0 4.1 5.3 7.5 4.5
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 17 February 2014. Price in USD for Vipshop.
10
India
We expect domestic growth, inflation and fiscal dynamics to remain challenging over 1H 2014. Exports are expected to benefit from global revival and a weak INR. Consumption is likely to benefit marginally from agri sector growth. But the investment cycle may remain constrained. Inflation has eased marginally but still remains elevated. There has been a notable shift in policy focus from WPI to CPI. Our economics team expects further 50 bps hike in the benchmark interest rate over 2H CY14. The dependence on global liquidity and QE tapering linked volatility will likely continue over 1Q CY14. The result of the National Elections in May would play an important role in 2H CY growth revival, particularly for the investment cycle and also for the performance of Indian equities. Our portfolio stance is based on these key assumptions: Global growth appears to be on a relatively solid footing. Our global team expects QE tapering to conclude by November 2014. This, however, implies lower liquidity from the US Fed as we go into the year.
Bharat Iyer AC
Growth in India is expected to remain meaningfully below trend over 1H. Recovery hopes are largely pegged on expectations of a decisive verdict in the National Elections scheduled for May. The political situation, however, remains fluid. In this backdrop, our portfolio remains biased towards global sectors and the more defensive segments of the local economy. We are keeping sector weightings unchanged this month.
Price (LC) 380 1,487 391 1,979 473 150 P/E (x) P/B (x) FY14 FY14 7 15 7 19 38 11 0.9 15.0 7.3 15 32 11 Div. yield 14E (%) 2.8 0.5 0.5 3.2 1.2 3.3 ROE 14E (%) 14 31 25 39 32 10
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of February 17, 2014.
11
Indonesia
J.P. Morgan regional strategy team rates Indonesia OW relative to EM/Asia ex-Japan. Indonesia has outperformed APxJ/EM by 13%/12% YTD. Recent economic data shows that macroeconomic adjustment underway is progressing smoothly. The trade balance recovered in 4Q. BoP was in surplus in 4Q. Rupiah has reversed its depreciating trend. Imports have cooled off, with GDP growth only slowing modestly to 5.7%. This is more buoyant than previously expected. After raising rates by 175bps in 2HFY13, the Central Bank has held policy in the last few months. We think tightening may be close to running its course, with risks only if prompted by external sector turbulence. After declining through the course of FY13E, earnings estimates have stabilized recently. Consensus estimates EPS growth of 10-12% pa over this year and next, which appear reasonable. Politics is a factor. Indonesia is due to go to the polls in April (Parliament) and July (Presidential).
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of Feb 17th, 2014.
12
Malaysia
Subsidy reduction is a key theme given the governments need for fiscal prudence and sustaining domestic-led growth. Tenaga is the biggest beneficiary, in our view. Petronas M$300B capex is much needed to support government revenues and domestic growth, favourable for oil and gas service providers. M$160B rail-related infrastructure spending is positive for construction over the medium term. Consensus UW on plantations could reverse on the back of successful Indo biofuel mandate execution. Visit Malaysia 2014 supports higher tourist arrivals benefitting airlines and airports (MAHB). We prefer the latter. We expect the glove/exporters to track US/EU/Japan recovery. We are most negative on expensive defensives such as telcos, and cautious on developers/consumer-led banks due to property-demand cooling measures and moderating consumption growth. Our sector/stock selection is split between domestic capex/ thematic winners, and exposure to external sector recovery. Our Best Malaysia Five picks are Tenaga, SAKP, Gamuda, Top Glove and Genting Plantations. Stocks to avoid: Maxis, an expensive defensive with rising competition/capex risk, UEM
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 14 Feb 2014.
13
Philippines
Overall market view. Philippines is rated OW relative to EM & Asia ex-Japan. The country is one of the few countries in EM that has been growing above potential. Domestic demand is robust. External position is healthy. Domestic liquidity is aplenty. We believe that market EPS growth will catch up with the robust macro growth. Driver: Banks, in our view, will be the key catalyst for the EPS growth upgrade. Core banks outlook is promising. We expect credit demand to pick up strongly amid the steep LDR decline. Consumer loans are expected to underpin the loan expansion. Positive earnings surprise by banks could result in further our above consensus market EPS growth of 10% increasing further. Sector and stock calls: Metropolitan Bank is our preferred banks pick. Apart from banks, we think that property will be a key beneficiary of the consumerled loans growth. We like ALI given its high leverage on the economic growth and widening lead over peers in terms of earnings and return trajectory. We are
Jeanette Yutan AC
positive on modern retailers given rising organized retail penetration amid increasing per capita income and expansion of middle income families. We like Puregold among the retailers. Ayala Corp is our preferred country proxy given its cheap valuations and leverage on the economy. We will avoid telcos (Globe is our UW stock) given record high valuation, rising capex intensity, and increasing SAC due to postpaid aggression by the players. Risks and key issues. Rapid currency depreciation, sudden rise in interest rates are key risks to our view.
Top Picks and Stocks to Avoid
Code Rec Top Picks ALI PM OW AC PM OW MPI PM OW PGOLD PM OW MBT PM OW Stock to Avoid GLO PM UW Price (LC) PT P/E (x) P/B (x) FY14 FY14 25.0 20.5 13.9 21.6 15.4 19.5 3.5 2.3 1.2 3.3 1.7 4.9 Div. yield 14E (%) 2.1 0.8 0.8 1.0 1.0 4.9 ROE 14E (%) 14.8 11.6 8.6 16.3 11.5 28.1
27.20 36.00 555.00 715.00 4.43 6.50 41.70 51.00 82.25 85.00 1785 1520
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of Feb 18 2014.
14
Singapore
Singapores introvert/extrovert conundrum: Recent economic beats show a clear change in leadership away from domestic demand towards external factors for the first time since 2010. Our top of street 2014 GDP forecasts are solely driven by Singapore delivering the second best export performance in all of Asia (net contribution change behind only Vietnam; total export growth behind only the Philippines); Consumption and Domestic Investment are forecast to be negative YoY drivers. Consumer weakness is clearly seen in falling retail sales, consumer confidence, Consumer loans, housing loans, as well as the fact that the retail segment saw the sharpest negative EPS revisions in the market in 2013. Inventory weakness is largely a result of slowing inventory restocking. Base Case: 1) Slowing growth (slowing productivity), 2) Higher core inflation (look beyond housing / transport); Currency risks (an end to 12 years of currency strength). OW Industrials (Buy DMHL, JCNC, KEP, EZI, Avoid COS, JS, SMM); OW Transport (Buy SIA, SIE, NOL, HPHT); N Telcos (Buy M1); N Banks (Buy DBS, SGX); UW Property (Buy CAPL, GLP, CMA; Avoid CDREIT, FEHT, MINT); UW Agri (Buy FR, Avoid IFAR, MII, GGR); UW Consumer (Avoid GENS). Shorter term, the market is beginning to bounce off of oversold levels and shorting activity for the market is close to all time high reported levels (note that the
2.94 4.50 0.64 0.75 37.40 51.00 9.99 13.00 4.70 6.00 0.71 1.41 0.81 0.65 0.80 0.60
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 17th February 2014.
15
South Korea
We are selective buyers of Korean equities in 2014, preferring DM growth beneficiaries as well as domestic housing market recovery plays. According to JPMs economic research team, the Korean economy is expected to recover modestly in 2014 from a subpar growth in 2013 (GDP growth of 3.8% in 2014E vs. 2.8% in 2013). Of note, our economic research teams base case scenario for the 2014outlook is based on a combination of: 1) strong export growth from limited segments such as tech, auto, and shipbuilding, and 2) a mild pick-up in domestic consumption without assuming a meaningful housing market recovery. However, our bottom-up analysis for the Korean economy suggests that the risk is on the upside for domestic consumption in 2014. We are more positive on the domestic housing market dynamics in 2014, based on the view that the housing market has been on a gradual recovery trajectory starting in 2H13 A pick-up in housing prices would have positive spill-over effects for domestic consumption and retail investment sentiment of the Korean equity markets. While EPS downward revisions have continued throughout the 4Q13 earnings season, we believe there are positive factors which drive prospects for doubledigit earnings growth for Korea Inc. in 2014: First, a bottom-up analysis suggests to us that the earnings cycle of Korea financials, materials, energy, utilities and industrials (i.e., the usual suspects for earnings disappointments since GFC) is likely to bottom out or
Scott YH Seo AC
has already put the worst behind. Second, our top-down view of a modest acceleration in GDP growth bodes well for Korea exporters and financials, giving support Korean Inc. EPS growth, which is currently projected to grow at 15% Y/Y in 2014E off a low base. Finally, recent initiatives by the government to push deregulatory measures could add to an increase in earnings visibility of the domestics, in our opinion.
Top Picks and Stocks to Avoid
Name Top Picks CJ O Shopping Hyundai Depart. Hyundai Dev. Hyundai Mipo Hyundai Motor KB Financial Group LG Display Naver Samsung Card Samsung F&M Seoul Semi. SK Hynix SK Innovation Stock to Avoid CJ Cheiljedang Dongbu Insurance Hanjin Shipping Lotte Chemical Samsung Eng. Rec OW OW OW OW OW OW OW OW OW OW OW OW OW Price (KRW) 380,300 138,500 26,700 167,000 232,500 36,450 26,000 750,000 34,050 228,500 44,550 39,050 132,500 PT 452,000 180,000 30,000 260,000 330,000 45,000 34,000 880,000 51,000 330,000 52,000 45,000 160,000 P/E (x) FY14 21.8 10.4 NM NM 5.7 9.2 10.4 75.9 13.4 18.7 23.1 7.7 17.7 29.8 12.7 NM 23.5 NM P/B Div. (x) yield ROE FY14 14E (%) 14E (%) 4.3 0.9 0.9 1.1 1.3 0.6 0.8 12.2 0.7 1.1 3.5 1.6 0.7 1.2 1.4 1.2 1.2 3.0 0.7 0.5 0.4 0.9 1.1 1.6 1.9 0.1 2.1 1.8 0.0 na 2.4 0.7 1.9 0.0 0.5 0.0 21.2 10.3 NM NM 17.7 5.8 8.0 19.5 5.5 6.1 16.6 24.2 4.2 2.3 11.2 NM 5.2 NM
UW 268,000 200,000 UW 53,200 41,000 UW 6,830 5,000 UW 220,500 155,000 UW 75,200 50,000
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of February 14, 2014.
16
Taiwan
We expect a continuation of the 2H13 trend into 2014 Upstream tech, LED sector, Life Insurers, and selective non-tech names are likely to continue to lead the market. We prefer upstream tech, LED sector, Life Insurers, and selective non-tech names. Although 1Q14 would be the low season, we see the trend of handset commoditization benefitting component makers/retailers. Apples production shift and normalized inventory should support the semiconductor players. In downstream tech: 1) volume plays will benefit from the drought of innovation and rise of low-cost smartphones; 2) cheap tablet makers and data centre providers benefit from the cloud-wave proliferation; 3) stick with the market-share gainers in the PC sector rather than those with broad exposures to the end market. LED sector is another bright spot this year, benefited from accelerating adoption of lighting in mainstream. Among upstream tech, we favor TSMC as a structural winner with strong market share gains (Apple in 2014-15). The global economy is expected to record above-trend growth. Rebound in the global manufacturing sector should support Taiwans export and industrial sectors in 1H14.
Alvin Kwock AC
On the other hand, we are overweight on the life insurance sector, which is the key beneficiary of the rising yields in the region. Legislative review on the cross-strait Trade in Service Agreement is expected by end-1Q14. Brokers and Insurers should benefit the most. Our top picks are in semiconductors (TSMC and ASE), life insurance (Cathay), LED (Everlight) and tech retailer (Synnex). The stocks we would avoid are Far EasTone, Cheng Shin Rubber and Pegatron.
Top Picks and Stocks to Avoid
Price Name Rec (LC) PT Top Picks 2330 TW OW 108.00 130.00 2311 TW OW 30.00 35.00 2882 TW OW 46.00 50.80 2393 TW OW 73.40 83.00 2347 TW OW 52.00 62.00 Stocks to Avoid 4904 TW UW 59.90 56.00 2105 TW N 77.90 74.00 4938 TW UW 40.00 33.00 P/E (x) P/B (x) FY14 FY14 12.86 11.40 14.59 14.95 11.83 14.68 13.26 10.81 2.78 1.67 1.90 1.84 2.03 2.64 2.85 0.79 Div. yield 14E (%) 2.76 4.23 2.09 3.76 5.99 7.42 2.88 5.48 ROE 14E (%) 21.62 14.68 13.65 12.68 17.59 18.05 23.03 7.73
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of Feb 17, 2014.
17
Thailand
We believe political risks in Thailand are priced in, and any resolution should lead to outperformance. Thailand is also defensive versus other EM countries as it has limited overseas funding exposure. Also, overall Thai corporates and middle-upper-income households are in good shape. Growth is slowing down after strong consumption growth in past few years. That is the key issue for the market. However, we believe that growth expectation right now is already low. We prefer banks, leading landed property developers, exporters, and tourism-related stocks. We believe there remain growth opportunities for banks to expand into SME and housing loan markets. Current mortgage condition is still solid and reflects the strong property market of the past couple of years. Funding competition has eased with state-owned banks being a lot less aggressive. This highlights NIM upside to big banks. Asset quality should be manageable as employment market remains firm. For property, we believe the condo market will suffer but the landed segment should remain firm. LH is the leading player and has strong profit margin profile given the cheap land cost acquisition in the past. Among exporters, we like CPF (OW, Bt26) and TUF as food exporters that should benefit from global economic recovery. We also like PSL as it has passed the
Anne Jirajariyavech AC
bottom of the cycle and PSL being a conservative shipper with high cost-advantage ships should benefit when the cycle turns. We would recommend investors avoid ADVANC, TCAP, and KK. We believe earnings expectation for these stocks remain too high. Competition in the telco space is high and suggests limited growth opportunities. For auto HP, we have passed the peak cycle and it would take at least 2 years to recover in terms of auto sales in addition to the asset quality issue in the used car market. We should have also seen the bottom in terms of interest rates. Any hike in interest rate is not good for small banks.
Top Picks and Stocks to Avoid
Code Rec Top Picks KBANK OW SCB OW LH OW TUF OW PSL OW Stocks to Avoid TCAP UW KK UW ADVANC UW Price (Bt) 168.00 149.00 9.45 66.25 23.00 31.50 39.50 215.00 PT 230.00 200.00 14.00 72.00 25.00 34.00 42.00 200.00 P/E (x) P/B (x) Div. yield ROE FY14 FY14 14E (%) 14E (%) 8.5 9.1 13.1 14.7 34.6 7.3 9.1 16.6 1.6 1.8 2.8 2.0 1.5 0.8 0.9 20.6 2.4 3.7 6.1 3.4 1.7 4.8 7.6 6.0 20.0 20.7 21.6 13.9 2.4 11.2 10.3 128.4
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 19 February, 2014.
18
Sectors
19
Autos
Embrace the tailwinds but mind the headwinds: Asian autos are expected to exhibit a very different performance in 2014, either supported by external tailwinds from developed markets (DM) or dragged by domestic headwinds within Asia. Global players (positive): Japan and Korea obviously fall under this category given their exposure to DM, including US and Europe, where we are positive and expect 3%/2% sales growth respectively in 2014. Greater China (cautious): China auto stocks have mostly corrected by 15-25% in the last two months with mounting concerns on six sector specific macro and policy headwinds. Risk-reward now appears attractive for stocks relevant to the two themes that we are bullish on: SUV and luxury car. We gain exposure through Great Wall Motor and Brilliance China. India (avoid): Indian auto market is expected to remain stagnant in 1H14 due to weak consumer sentiment and political uncertainty before the general elections in May. We would avoid the market; however, own Mahindra & Mahindra for strong position in tractors and broad-based auto portfolio as well as presence across industries (e.g. IT, finance) through its various subsidiaries.
Nick Lai AC
ASEAN (avoid): We are bearish on the two biggest markets here Indonesia and Thailand. Not only are both facing political uncertainty (i.e. Indonesia has legislative and then presidential election in April/July respectively while Thailands growth this year depends on policy response after recent tensions) but domestic auto sales will at best stay flat. We will completely stay away from ASEAN in 1H14 and revisit the market in 2H14.
Top Picks and Stocks to Avoid
Name Code Top Picks Hyundai Motor 005380 KS Brilliance 1114 HK China Great Wall 2333 HK Mahindra & MM IN Mahindra Hankook Tire 161390 KS Socks To Avoid Dongfeng 489 HK Maruti Suzuki MSIL IN Rec Price (LC) PT P/E (x) P/B (x) Div. yield ROE FY14 FY14 14E (%) 14E 5.1 10.3 9.8 13.8 8.9 7.7 15.8 1.0 2.7 2.4 2.6 2.0 1.1 2.1 17% 1.1% 30% 1.0% 27% 4.1% 19% 1.5% 20% 0.6% 16% 2.0% 13% 0.6%
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 14 February 2014.
20
Consumer
ROIC framework trumps earnings growth in driving stocks: We see a strong correlation between ROIC generation and EV/IC valuation. Putting the ROIC framework to work and adding our bottom-up analysis for the region, in 1Q14 we recommend being positioned in selected Korea discretionary (CJO Shopping, HDS), China staples (Mengniu), Thailand staples names (CPALL and food processors) and in Indonesia those with pricing power (Indofood) and PureGold in the Philippines. We find India valuations demanding. In China, we continue to be cautious on discretionary given structural challenges. Similarly, in Thailand, we remain cautious on discretionary and believe there could be downside risk to estimates. Stable growth in the region: Bridging Macro to Micro: Across the region, our economists are projecting a GDP growth of 6.2% for 2014, almost flat on 2013f (6.1%). There is a high convergence between our expectations for consumer earnings acceleration/ deceleration vs. the macro backdrop. For stocks under our coverage across the region, we expect c.14% sales and c.22% earnings growth in 2014, compared to c.12% sales and c.7% earnings growth in 2013E. We are seeing some acceleration in earnings growth in China and Korea as we expect discretionary earnings to improve with margins normalizing in China and SSSG picking up in Korea. We expect earnings to accelerate in Thailand for
41.1 51 21.24 38.5 38.1 26.97 7,000 7,500.0 11.11 380,300 452,000 16.12 38.5 51.0 24.12 268,000 200,000 17.43 8.4 9.0 11.46 1,325.8 1,190 36.00
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of Feb 14, 2014.
21
Emerging Technology
The story for tech over the last several years has been about smartphones/tablets, but we believe we are reaching late cycle in these subspaces in light of the following signs of saturation: 1) Most high-end smartphone launches since the iPhone 5 have been disappointing; and 2) We have passed the peak of conversion as the China smartphone diffusion rate is more than 80%+ by 2013. Non-China EMs are still in the early stages of conversion, and that market unit size is 3-4x bigger than China, which would be the last leg of growth. The growth profile across PCs, smartphones and TVs is single-digits at best or even negative this will drive growth deceleration across most companies. Our discovery for high-growth stocks is based on the following framework: (1) high exposure to non-China EM smartphones; (2) new features in high-end smartphones, like fingerprints; and (3) transformation to new high-growth businesses. We track the blended ASP trend for Mediatek and TCLComm given that feature phones are still more than half of shipments, we believe there is still plenty of
Alvin Kwock AC
smartphone conversion to drive an ASP uplift. We will monitor if there are sapphire replacements or new SiP vendors coming up demand growth is quite clear to us; its really about whether the vendors can maintain their competitive advantages. We will follow new contract wins to gauge the pace of transformation for Anxin and Nidec. Our top picks are ASE, Sapphire Tech and Nidec. Our top avoids are Shinko, Lite-On Tech and Pegatron the avoids are all expected to see RoE compression due to competitive threats.
Top Picks and Stocks to Avoid
Code Rec Top Picks 2311.TW OW 2347.TW OW 123260.KS OW 6594.T OW Stocks to Avoid 2301.TW UW 6967.T N 4938.TW UW Price (LC) 30.00 51.50 42,000 12,325 46.35 763 40.00 PT 35.00 62.00 60,000 14,000 40.00 820 33.00 P/E (x) P/B (x) Div. yield ROE FY14 FY14 14E (%) 14E (%) 11.40 11.7 60.21 27.86 11.32 11.58 10.81 1.67 2.0 3.50 3.67 1.11 0.74 0.79 4.16 6.1 N/A 0.82 5.81 2.62 5.50 14.68 17.6 5.99 13.89 9.99 6.90 7.73
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of Feb 18, 2014; Synnex as of 19 Feb.
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Financials
Micro-level investment case We think 2014 will be very much a year of muddle through, as tighter system liquidity begins to weigh on growth & pushes up credit costs, but without the kind of acute shock we saw earlier this year. Loans continue to grow at 3-5% above deposits, pushing up LDRs at an accelerated pace going into the end of 2013. While LDRs are now approaching 100% across much of EM Asia, that in itself is not a constraint; indeed, we see mgmt teams allowing leverage to continue to build. This may support modest loan growth (+11% average) and EPS growth (+8% average) for the region, but we think investors will ultimately assign a much lower multiple to those earnings, as we near the end of the re-leveraging cycle post-08. Resilience of the growth outlook As mentioned above, we think banks are more confident in their ability to continue to supply credit, despite fears of excessive leverage and/or high LDRs. That said, wed rather own companies that benefit from ongoing easy liquidity, than companies that provide it, and ultimately hold the credit risk when economic growth decelerates later on. The biggest question is whether continued credit growth next year feeds through to inflation, forcing policy rate hikes.
Josh Klaczek AC
Drivers, trends, and datapoints we are tracking The prospect of steepening yield curves is likely to benefit NIM sensitive geographies like Taiwan, HK, Singapore, and to a lesser extent Korea. It also plays to our preference for life insurers, of which Ping An (in China) and Samsung Life (in Korea) are among our key Overweights. At the same time, rising interest rates remains a threat to asset quality in areas where leverage has increased the most in recent years (Indonesia; Thai consumer). In general, wed have an UW stance on Financials in the region, given the cyclical headwinds.
Top Picks and Stocks to Avoid
Code Rec Top Picks 939 HK OW 055550 KS OW ICICIBC IN OW KBANK TB OW 2318 HK OW Stocks to Avoid IIB IN UW ANZ AU UW 5871 TT N Price (LC) PT P/E (x) P/B (x) FY14 FY14 4.60 9.97 10.22 8.59 11.15 12.14 12.56 10.35 0.86 0.84 1.45 1.59 1.97 2.05 1.82 2.26 Div. yield 14E (%) 7.60 1.70 2.87 2.36 1.07 1.31 5.52 3.39 ROE 14E (%) 19.9 8.0 14.3 20.0 17.3 17.7 15.3 23.7
5.44 7.60 44150 54,000 1011 1,200.0 169.5 230.00 66.2 84.00 381.8 375.00 31.58 32.62 74.4 79.00
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of Feb 18, 2014.
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Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 14 Feb 2014 market close, except GENSP as of 20 February 2014
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Karen Li AC
attractive risk-reward trade-off, as well as Japanese capital goods names on benefits from weaker Yen. Infra operators: (i) Tollroads: We turned less positive on Chinese tollroads following the outperformance in 2013 while traffic growth started moderating in recent months. Our top picks are Zhejiang, Shenzhen and Yuexiu. (ii) Ports: COSCO Pac and Hutch Ports appear oversold to us as valuations look compelling, while fundamentals also benefit from ongoing trade recovery with the DM world. (iii) Airports: We are positive on Asian Airports, driven by the regions growing economies and rising middleclass incomes. We are bullish on both BCIA and MAHB.
Top Picks and Stocks to Avoid
Code Rec Top Picks 1766 HK OW 2338 HK OW 694 HK OW HOLI US OW UNTR IJ OW MAHB MK OW Stocks to Avoid 1157 HK UW 3339 HK UW Price (LC) PT P/E (x) P/B (x) FY14E FY14E 11.5 10.8 11.2 11.9 11.0 22.9 8.4 11.3 1.4 1.5 1.1 2.1 1.9 2.1 0.7 0.9 Div. yield 14E (%) 2.7 0.9 3.6 0.0 3.6 2.2 2.5 1.5 ROE 14E (%) 15.0 14.8 10.6 16.2 18.3 9.3 9.0 8.1
6.07 8.50 30.60 37.00 5.82 9.00 17.89 23.00 18,425 23,500 8.20 10.00 5.77 1.59 5.30 1.40
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of Feb.17, 2014.
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Internet
Chinas Internet sector has undergone an earnings downgrade cycle over the past three years due to investments in future growth drivers, with mobile Internet being a common area. We believe this earnings downgrade cycle has almost come to an end, with early movers (e.g. Tencent and Sina) beginning to harvest returns from the investment. Other names will follow suit over the next 1-2 years, in our view. With regard to mobile monetization, mobile gaming should be the first scalable business model capable of generating sizable revenue in 2014. Mobile ads are likely to gain more traction in 2014 due to growing traffic demand from mobile game developers. Such a trend should benefit game distributors (e.g. Tencent and Qihoo), as well as mobile advertising platforms (e.g. Tencent Guang Dian Tong and Mobile Baidu Union). Among Chinas larger companies, competition in mobile Internet has evolved from traffic acquisition to shaping new mobile eco-systems (e.g. Baidus Light App, and
Alex Yao AC
Tencents Weixin enterprise account) and user behavior (e.g. Ctrips brand ad campaign and competitive pricing) in order to capture new growth opportunities. We believe Tencent has extended its first-mover advantage in mobile user base into these two areas. In addition, we believe Tencent has reached the first return stage of mobile investment through game publishing while continuing to nurture new opportunities.
Top Picks and Stocks to Avoid
Code Rec Top Picks 700 HK OW QIHU US OW CTRP US OW SINA US OW YY US OW Stocks to Avoid DANG US UW Price (US$) HK$584.5 106.2 51.1 73.4 70.3 10.8 PT 580 98 52 100 67 7.5 P/E (x) P/B (x) FY14 FY14 33 51 38 31 29 N/A 11 17 4 3 8 8 Div. yield 14E (%) 7.8% 0.0% 0.0% 0.0% 0.0% 0.0% ROE 14E (%) 39% 38% 15% 10% 38% -0.8%
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of Feb 18, 2014.
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Daniel Kang AC
burden on China. That said, new supply should ensure markets are well supplied and we forecast 2014 average prices to be lower than 2013 levels (but higher than spot). Iron ore and copper are our preferred commodities while we would avoid nickel and aluminium. Selectively OW high quality, low cost, growth plays; Trade into the stock cycles. We recommend selective sector exposure in stocks with high quality, low (and declining) cost assets with volume growth:- Rio Tinto, Fortescue Metals, Jiangxi Copper, Anhui Conch and Tata Steel. Tactically, we also recommend buying into restocking cycles. On the other hand, we would avoid higher cost, higher debt companies that struggle on negative free cash generation.
Top Picks and Stocks to Avoid
Code Rec Top Picks TATA IN OW 914 HK OW RIO AU OW 358 HK OW FMG AU OW 004020 KS OW Stocks to Avoid ACEM IN UW 2600 HK N 1898 HK N Price (LC) 364.8 30.4 67.9 14.3 5.8 78.3K 154.60 2.8 4.0 PT 550.0 35.0 83.0 19.5 6.85 100K 145 2.8 4.5 P/E (x) P/B (x) FY14 FY14 6.57 11.20 10.38 9.95 4.92 10.42 18.7 (9.81) 10.83 0.80 2.04 1.89 0.82 1.50 0.62 2.5 0.72 0.47 Div. yield 14E (%) 3.18 1.79 2.95 3.02 1.94 0.57 2.77 ROE 14E (%) 12.70 19.60 17.00 8.51 26.00 6.27 16.1 (7.04) 4.40
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 14 Feb 2014 (intraday) except for FMG and Ambuja, which is as of 19 Feb.
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Scott Darling AC
However, for our Asia Oils equities, we continue to see differentiation within the sector and have a preference for companies that focus on free cash flow from exploration growth, capital discipline, and/or restructuring which we expect to be rewarded by investors within an oils equities context. We see Sinopec, Woodside, eventually Santos and to a lesser extent PetroChina as adapting to this changing environment.
Top Picks and Stocks to Avoid
Name Rec Top Picks 857 HK OW 386 HK OW PTTEP OW 3337 HK OW BPCL OW Stocks to Avoid OSH AU UW BPT UW PTT N Price (LC) PT P/E (x) P/B (x) FY14 FY14 9.0 7.1 8.5 16.8 14.5 30.1 8.1 8.0 0.9 0.9 1.4 3.2 1.4 2.7 1.0 1.2 Div. yield 14E (%) 5.0% 5.7% 4.1% 1.9% 2.1% 0.5% 2.5% 4.4% ROE 14E (%) 10.7% 13.0% 17.4% 21.6% 10.6% 9.1% 12.5% 15.0%
7.80 11.00 6.03 7.50 152.50 180.00 5.27 7.00 355.80 450.00 8.32 1.54 289.00 7.23 1.26 310
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of February 17 2014..
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134,000 160,000 74.75 95.00 810 1000 222,500 155,000 66,900 63,000 53.75 58.00
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of February 17, 2014.
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SMID-Caps
Key message: We see a more positive environment for sales growth and margin expansion over the next 12 months than anytime since 2009, driven by a benign inflation environment (PPI is -1.5%) and rising construction starts (2013 up 13.5%). Drivers/catalysts/events: 1) Improving demand as government maintains stimulus, 2) re-rating of industrials in 2013 as margins improve, 3) market consolidation boosting pricing power. Key issues / risks: 1) Slower pace of recovery in 2013 compared to 2009, 2) resurgence in inflation could dampen rally.
FY14E PE (x) for SMID Caps
Top Picks: Key OW stock calls: Xinyi Glass, a diversified lowcost glass producer; Techtronic Industries, global power tool brand gains market share; China State Construction, a major affordable housing contractor. Key avoid calls VTech on challenges to its 40% European business, TCLM on falling margins and Kingboard Laminates on exposure to PC demand.
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Technology
As highlighted in our 2014 Tech outlook report, we view two key themes:, "revenge of the laggards" and "components over customers" to run through this year. In the smartphone space, we see increased commoditization in the high-end segment on limited hardware differentiation and intensified price competition. Further, new technologies such as flexible displays, are still in the early stages of development. We expect PC decline to moderate in 2014. We expect the commercial PC sector to lead a recovery based on the upcoming WinXP expiry and a resumption of IT spending driven by an improving DM macro-economic environment and enterprise replacement cycle. As a result of this and low market expectations, we believe that PCs could surprise on the upside. We expect "convergence" devices such as smartwatches (tech+healthcare), xEV (tech+auto), and convertible PCs (tablet+NBPC) to gain increasing traction in the tech space. We believe the smartwatch market (in its present form) is still in its infancy as the value proposition to the customer remains unclear (amid a high price point.)
JJ Park AC
However, breakthroughs in hardware tech such as flexible displays and battery tech will spur the growth of this market in the coming years. On the semiconductor front, we continue to uphold our expectation of a multi-year DRAM cycle upturn on industry consolidation and disciplined supply-side dynamics. Looking at other key components, we continue to view LED industry as a bright spot in 2014 on accelerated adoption in lighting and surging demand from mobile devices. On the other hand, we remain cautious on brands/OEMs and commodity large-size panel makers owing to industry-wide oversupply.
Top Picks and Stocks to Avoid
Code Rec Top Picks 2330 TW OW 000660 KS OW 046890 KS OW Stocks to Avoid 3481 TW UW 2498 TW UW Price (LC) PT P/E (x) P/B (x) Div. yield FY14 FY14 14E (%) 12.9 7.6 23.7 n.m. n.m. 2.8 1.6 3.6 0.5 1.3 3% 0% 0% 0% 0% ROE 14E (%) 21.6% 24.2% 16.6% -1.6% -2.4%
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of Feb 17, 2014.
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2.85 3.80 196500 260000 3.50 4.10 1940 3100 3.01 3.70 1760 6.97 5.08 1520 5.25 4.10
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 17th February 2014.
Transportation
Industry demand-supply growth balance is expected to improve. Full service airlines provide more leverage to US and Europe demand recovery than low cost carriers. We believe investors should avoid low cost carriers that have overaggressive capacity expansion, which only benefit the airports and MRO companies; prefer LCCs with more moderate and sustainable growth. Bulk shipping sector has finally bottomed out after 6 years of industry oversupply and we stay with our positive contrarian view and expect average rates in 2014 to surpass 2013 levels. Focus on operators of Handysize vessels. Container shipping should benefit from US and Europe demand recovery but industry supply growth is expected to accelerate, which will require continued capacity discipline to support rate recovery. P3 network and deepened G6 and CKYH alliances, if approved, could help stabilize freight rates but could crowd out weaker players longer term. Substantial potential upside as investors look for cyclical plays leveraged to DM recovery: Valuations are at a c.27% discount to their historical average levels with bulk shipping stocks providing the biggest potential
Top Picks and Stocks to Avoid
Code Top Picks 0753 HK CEB PS CTRIP US 010620 KS 2603 TW 047810 KS MAHB 7003 2343 HK PSL TB 0548 HK SIA SIE Stocks to Avoid 1101 2618 HK 117930 HK Rec OW OW OW OW OW OW OW OW OW OW OW OW OW UW N UW Price (LC) 5.31 48.90 45.83 167,000 17.60 31,450 8.17 197 5.17 23.00 3.42 9.82 4.70 1.45 15.65 6,830
Corrine Png AC
upside to mid and peak cycle valuations, followed by airlines and container shipping.
P/BV/ PT 7.00 77.00 52.00 260,000 22.00 33,000 10.00 300 6.50 25.00 4.00 13.00 6.00 0.70 17.00 5,000 14E 1.0 1.2 4.1 1.1 0.9 2.8 2.1 0.8 0.9 1.5 0.6 0.9 3.8 0.8 1.4 1.4 15E 0.9 1.1 3.7 1.1 0.8 2.5 2.0 0.7 0.8 1.4 0.5 0.8 3.7 1.0 1.3 1.3
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 14th Feb, 2014. FY15 and FY16 for SIA, SIA Eng, Mitsui Engg & Shipbdg as they have March year end.
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Boris Kan AC
opportunities & Govt support), Longyuan (& new solar opportunities + Govt support), Tenaga (sustainable weak coal prices & resilient energy demand growth), and Metro Pacific (steady growth in tollway business + upside from new infrastructure projects). Stocks to avoid are Shanghai Electric (weak domestic coal-fired order outlook + earnings disappointment) and Adani Power (Highest exposure to weakening INR & gearing (~1000%) + earnings disappointment).
Top Picks and Stocks to Avoid
Price P/E (x) EPS (LC) Mkt cap ROE Code Rtg (LC) (US$MM) 14E 15E 14E 15E 14E (%) Top picks 836 HK OW 19.92 11,813 8.1 7.5 2.37 2.56 17.5 916 HK OW 9.38 9,821 14.8 12.3 0.64 0.77 12.0 TNB MK OW 9.39 20,900 12.9 12.9 2.22 2.22 11.3 MPI PM OW 4.79 2,587 13.3 12.3 0.06 0.06 8.9 Stocks to avoid 2727 HK UW 2.79 7,123 9.6 9.4 0.26 0.26 8.3 ADANI IN UW 35.25 1,587 26.3 10.5 0.16 0.41 8.4 Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 17 Feb 2014.
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ITV&R
Air China H (Overweight; Price Target: HK$7.00)
Investment Thesis We like Air China best in the long term given its strong organic growth prospects (driven by rising outbound Chinese traffic, premium/transit pax/cargo market share gains), leverage to growing West China market, and lowest exposure to hi-speed rail competition. Valuation Our Dec-14 PT of HK$7.0 is based on 1.3x P/BV, a 25% discount to Air Chinas historical average valuation since listing (excluding the M&A speculation period), given its lower-than-historical average profitability. Risks to Rating and Price Target Key downside risks: 1) Chinas growth stalls, resulting in industry oversupply, 2) rising competition from high-speed rail expansion, 3) volatile fuel prices, 4) weakerthan-expected earnings contribution from Cathay Pacific and other associates.
while outlooks remains grim in 2014 given the weak end demand as suggested by the low and falling utilization hours for concrete pumps. Valuation Our Dec-14 PT of HK$5.30 is derived based on the DCF valuation while taking into consideration the peer valuation and the companys own historical valuation. Our DCF valuation uses the following assumptions: a WACC of 12.3%, driven by a cost of equity of 14.1% (risk-free rate of 5%, equity risk premium of 7% and company beta of 1.3x), a cost of debt of 4.8%, a target debt to capital of 20% and terminal growth of 0%. Our PT corresponds to a target P/E of 8x/9x, and P/B of 0.7x/0.6x on FY14/FY15E. Risks to Rating and Price Target Key upside risks to our PT include: (1) Stronger-than-expected recovery in construction activity in China, particularly in the housing sector; (2) Further market share gains in the domestic market; (3) Stronger-than-expected export sales; (4) Successful foray into other new markets including heavy trucks and agricultural machinery.
Risks to Rating and Price Target Key upside risks to our price target include: (1) newbuilding ship price recovery (positive for shipbuilding margins), (2) successful operational execution and lowered delivery delay, (3) further financial support from the government.
Risks to Rating and Price Target Key risks to our price target/thesis are unexpected changes in governments investment in railway development, major fluctuations in raw material costs, and potential capacity constraints.
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Risks to target price Upside risks include: 1) stronger-than-expected growth in the Singapore gaming market, 2) quicker-than-expected market share recovery with the help of Marine Life
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Park, 3) positive operating leverage from RWS's ramp-up and, 4) quicker-thanexpected materialization of M&As or overseas venture. Downside risks include: 1) slower-than-expected growth in the Singapore gaming market, 2) delay of materialization of M&As or overseas venture, 3) further policy risks regarding local players participation in gaming activities, 4) deterioration of macroeconomic environment in South East Asia and visitation slowdown.
CSL) could allow lower competitive intensity. We think HTHKH is well placed to benefit given lower than industry average ARPU, smartphone penetration, as well as fixed infrastructure base. Valuation Our Dec-14 PT of HK$3.8 is based on our SOTP valuation comprising HK$2.4 for the mobile operation and HK$1.4 for fixed-line and others. We use the DCF approach for both mobile and fixed-line businesses and combine the two to arrive at our target price. Risks to Rating and Price Target Downside risks include: 1) continued weak demand for new handsets; and 2) mobile service revenue fails to turn around in 2014.
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Valuation Our Sept-14 PT for IndusInd of Rs375 is based on 2 stage Gordon growth model implying 2.2x Sept14 book. Our valuations factor in Cost of Equity at 15.7%, Normalised ROE of ~21% and terminal growth of 5%. Risks to Rating and Price Target The key risks to our Underweight rating include:1) If the demand for CVs improves with the positive macro trends then it could have a positive impact on loan growth.2) We are building in substantially higher credit costs in FY14E & FY15E given the weak macro; however if the macro turns around quickly than credit costs are likely to be much lower than our expectations
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Valuation Over the last 5 years, Maxis has traded at an average forward 18x P/E and in a range of 14.2x P/E at the bottom and at 23.8xP/E at the top end. Maxis stock is currently trading at 26.1x 2014E P/E and 25x FY15E P/E. It is currently trading at 27% premium to its historic trading average of 20.5x forward P/E. Our target P/E multiple of 18.5x is in line with its average historic trading multiple. We believe that given the headwinds from competitive pressures and the impending consensus downgrades, valuation multiples are likely to compress from current levels. Our PT is based on a sum of 1) potential upside/ (downside) to consensus EPS vs. JPM EPS estimates and 2) our estimated multiple expansion/(contraction) based on peak P/E multiple. Our target P/E multiple is based on the stocks historical trading range and expected future business changes.
Price target and valuation analysis
Current consensus P/E (a) JPM target P/E (b) Upside/ (Downside) to target multiple (b/a-1=e) JPM vs. consensus EPS (d) Sum of multiple and EPS upside/(downside) (e+d) JPM Dec -2014 price target (M$/sh) 2014E 23.4 18.5 -20.8% -10.3% -31% 2015E 22.0 18.5 -15.9% -9.5% -25% 5.25
Risks to Rating and Price Target Key upside risk to our rating and price target includes Maxis successfully recouping market share without any significant increase in marketing expenses. We expect margins for Maxis to decline going forward on account of higher marketing expenses; in the event Maxis is able to sustain margins through better cost management, that would be a source of upside risk to our earnings estimates and price target.
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Valuation Our valuation of OSH is A$8.43/share and our Jun-14 price target is A$7.23. Our valuations and price targets are based upon our sum-of-the-parts DCF. We apply risk factors to the various growth projects in a company's portfolio based on our confidence in the project. Our DCF valuation includes full value for PNG LNG T1 & T2 and 75% of Train 3. We also include 50% of a Mananda-5/6 development. We currently give nothing explicit for the speculative exploration position in Gulf of Papua, nor the Taza discovery which has unclear economics. We employ a 10% WACC for OSH in our NPV. We assume a long-term real oil price of US$90/bbl. For our base-case valuations, we use a long-term exchange rate of A$/US$0.80, however, for our price targets we use a more conservative US$0.90 to reflect the markets apparent view on the FX rate. Risks to Rating and Price Target The main upside risks to our price target include: a stronger oil price and/or weaker AUD (both spot and future) successful appraisal and commercialisation of OSH equity gas for PNGLNG expansion trains demonstrated good economics at the potentially 250-500mmbl+ Taza discovery.
Risks to Rating and Price Target Main risks to the earnings outlook are a sharp fall in oil prices, recent natural gas price hikes not being passed through to customers and no further rises, a higher import burden and weak chemicals profitability from lower demand and margins.
Valuation Our Jan-15 price target of RM5.0 is based on SOTP of a) Tender Rig business valued at 18x P/E; b) OCSS valued at 22x P/E; c) Fab and HUC valued at 22x P/E; d) EJV values at 16x P/E; and e) Others valued at 15x P/E.
SOTP Breakdown valuation Tender Rig Business OCSS Fab & HUC EJV Others Price Target (M$ / share) Number of Shares Implied P/E ('15E) Implied P/B ('15E) RoE - 15E RM Millions 13816 11904 8527 274 -4855 29666 5992 21.4 2.6 12.9% M$ per share 2.31 1.99 1.42 0.05 (0.81) 4.95 5.0
Risks to Rating and Price Target Key risks to our price target are (a) rising gearing, (b) execution risks, and (c) potential increased international competition.
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Valuation Our Dec-14 price target of S$13 is based on 1.1x P/BV, in line with SIA's historical average over the past 10 years. We think this is well supported by SIAs liquidation value of c.S$13.3/shr. Risks to Rating and Price Target Key downside risks: deterioration in the macro environment, rising fuel prices, worse-than-expected competition from low-cost carriers and Middle Eastern carriers, value-destroying M&A, and a weaker Singapore dollar.
Synnex overseas is doing well and we expect the momentum to continue in the coming years. Synnex USA is expected to see strong growth thanks to Hyve solutions and acquisition of IBM call centres. We believe the non-handset business will keep seeing steady growth momentum. Consumer electronics will remain strong with most upside coming from strong XBox sales. Valuation Our Dec-14 TP of NT$62 is based on 13x FY14/15 P/E which is in-line with the historical average. We increase our TP from NT$57 to reflect the improving growth visibility and roadmap to return earnings to shareholders. Risks to Rating and Price Target Key risks to the rating and PT include: Lengthening of CCC which would hurt Synnexs ability to pay a cash dividend Weakness in EM currencies posing another writedown risk Rise of e-commerce especially among bigger players, which could develop internal logistics.
Source: Company reports and J.P. Morgan estimates. Note: Adjusted for CWIP.
Risks to Rating and Price Target Key risks (other than macro economic weakness) include a sharp decline in India profitability, weakness in steel price and a decline in European demand.
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traded at a premium to the market when earnings are growing, and we expect FY14E EPS to register growth for the first time in 3 years. Valuation We have a Rp23,500 Dec-14 PT based on a 13x 12M forward multiple. Our target multiple is broadly in line with UNTRs five-year average (12.9x) and three-year (13.5x) 12M forward consensus P/E. One of the risks to our view is that our DCF valuation of UNTR is above the current stock price - but we think growth needs to return for DCF to be credible as a valuation lodestone. Risks to Rating and Price Target 1) Customer pressure could make UNTR partially cede margin gains, 2) mining equipment sales are running well below replacement needs.
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We value Wynn Cotai using 28% RoIC, 12x 2017 EBITDA multiple and a 10% discount rate. We assume Macau gaming revenue to grow 17% for FY14 and 18% for FY15. Risks to Rating and Price Target Downside risks include: 1) Significant market share loss when VIP market competition intensifies, 2) Policy risks such as travel restrictions that could slow down visitation to Macau, 3) China economic slowdown that could affect discretionary customer spending, 4) Delay of Cotai project completion.
FY08 3,894 768 735 (857) 148 134 160 10% 11.3% 42,551 (4,321) (8) 0 38,222 3,915 9.8
FY13E 12,307 2,614 2,231 (2,180) 738 449 1,237 3.0% 4.2% 6.0% 1.30 6.2% 10x
Assumptions Terminal growth Risk-free rate Market risk Beta Cost of debt Implied exit P/E multiple (x)
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Risks to Rating and Price Target The key downside risks to our OW rating and PT are falling demand for construction glass that may result from a cooling property market in China and further weakness in PV glass demand from Europe.
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WACC
Team List
Name Aditya Makharia Aditya Srinath, CFA Adrian Mowat Ajay Mirchandani Alex Yao Alvin Kwock Anne Jirajariyavech Benjamin Wilson Bharat Iyer Boris Kan Corrine Png Daniel Kang Ebru Sener Kurumlu Gokul Hariharan Hoy Kit Mak James R. Sullivan, CFA Jeanette Yutan JJ Park Josh Klaczek Joy Wang Karen Li, CFA Kenneth Fong, CFA Leon Chik, CFA Lucy Liu Michael Yu, CFA MW Kim Narci Chang Nick Lai Pinakin Parekh, CFA Princy Singh Samuel Lee, CFA Scott L Darling Scott YH Seo Seshadri K Sen Sokje Lee Tony SK Lee Wan Sun Park William Chen Youna Kim Phone (91-22) 6157-3596 (62-21) 5291-8573 (852) 2800-8599 (65) 6882-2419 (852) 2800 8535 (852) 2800-8533 (66-2) 684-2684 (61-2) 9003-8612 (91-22) 6157-3600 (852) 2800-8573 (65) 6882-1514 (852) 2800 8570 (852) 2800-8521 (852) 2800-8564 (60-3) 2718-0713 (65) 6882-2374 (63-2) 878-1131 (822) 758-5717 (852) 2800-8534 (65) 6882-2312 (852) 2800-8589 (852) 2800-8597 (852) 2800-8590 (852) 2800-8566 (852) 2800 8511 (852) 2800-8517 (886-2) 2725-9899 (886-2) 2725-9864 (91-22) 6157-3588 (65) 6882-2746 (852) 2800-8536 (852) 2800 8578 (82-2) 758 5759 (91-22) 6157-3575 (82-2) 758-5729 (852) 2800-8857 (82-2) 758-5722 (886-2) 2725-9871 (82-2) 758-5715 Email [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] Bloomberg Page JPMA MAKHARIA <GO> JPMA SRINATH <GO> JPMA MOWAT <GO> JPMA MIRCHANDANI <GO> JPMA YAO <GO> JPMA KWOCK <GO> JPMA JIRAJARIYAVECH <GO> JPMA WILSON <GO> JPMA IYER <GO> JPMA KAN <GO> JPMA PNG <GO> JPMA KANG <GO> JPMA KURUMLU <GO> JPMA HARIHARAN <GO> JPMA MAK <GO> JPMA SULLIVAN <GO> JPMA YUTAN <GO> JPMA PARK <GO> JPMA KLACZEK <GO> JPMA WANG <GO> JPMA KLI <GO> JPMA FONG <GO> JPMA CHIK <GO> JPMA LLIU JPMA YU <GO> JPMA MKIM <GO> JPMA NCHANG <GO> JPMA LAI <GO> JPMA PAREKH <GO> JPMA SINGH <GO> JPMA SLEE <GO> JPMA DARLING <GO> JPMA SEO <GO> JPMA SEN <GO> JPMA SOKJELEE <GO> JPMA TONYLEE <GO> JPMA WPARK <GO> JPMA WCHEN <GO> JPMA YKIM <GO> Legal Entity J.P. Morgan India Private Limited PT J.P. Morgan Securities Indonesia J.P. Morgan Securities (Asia Pacific) Limited J.P. Morgan Securities Singapore Private Limited J.P. Morgan Securities (Asia Pacific) Limited J.P. Morgan Securities (Asia Pacific) Limited JPMorgan Securities (Thailand) Limited J.P. Morgan Securities Australia Limited J.P. Morgan India Private Limited J.P. Morgan Securities (Asia Pacific) Limited J.P. Morgan Securities (Asia Pacific) Limited, J.P. Morgan Securities Singapore Private Limited J.P. Morgan Securities (Asia Pacific) Limited J.P. Morgan Securities (Asia Pacific) Limited J.P. Morgan Securities (Asia Pacific) Limited JPMorgan Securities (Malaysia) Sdn. Bhd. (18146-X) J.P. Morgan Securities Singapore Private Limited J.P. Morgan Securities Philippines, Inc. J.P. Morgan Securities (Far East) Ltd, Seoul Branch J.P. Morgan Securities (Asia Pacific) Limited J.P. Morgan Securities Singapore Private Limited J.P. Morgan Securities (Asia Pacific) Limited J.P. Morgan Securities (Asia Pacific) Limited J.P. Morgan Securities (Asia Pacific) Limited J.P. Morgan Securities (Asia Pacific) Limited J.P. Morgan Securities (Asia Pacific) Limited J.P. Morgan Securities (Asia Pacific) Limited J.P. Morgan Securities (Taiwan) Limited J.P. Morgan Securities (Taiwan) Limited J.P. Morgan India Private Limited J.P. Morgan Securities Singapore Private Limited J.P. Morgan Securities (Asia Pacific) Limited J.P. Morgan Securities (Asia Pacific) Limited J.P. Morgan Securities (Far East) Ltd, Seoul Branch J.P. Morgan India Private Limited J.P. Morgan Securities (Far East) Ltd, Seoul Branch J.P. Morgan Securities (Asia Pacific) Limited J.P. Morgan Securities (Far East) Ltd, Seoul Branch J.P. Morgan Securities (Taiwan) Limited J.P. Morgan Securities (Far East) Ltd, Seoul Branch
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J.P Morgans Asia Analyst Focus List (AFL) is a selection of high-conviction stocks collaboratively chosen by each Country and Sector research team across Asia-Pacific. The AFL includes Overweight- and Underweight-rated stocks, Overweight having superior outperformance prospects in a teams universe over the horizon of rating (6-12 months), and Underweight stocks having among the poorer relative performance prospects over the horizon of rating (6-12 months). The aim is to have one Overweight and one Underweight idea from each Research team in the AFL. Analysts can add or delete recommendations at any time and changes will be published, with the analysts rationale, on J.P. Morgan Markets. Please check J.P. Morgan Markets http://www.jpmorganmarkets.com for the most up-todate AFL at any time, or contact your J.P. Morgan representative. The Analyst Focus List is not a model portfolio. Please refer to specific company research for the fundamental investment thesis for each stock included in this list as well as the analysts complete views. If a stock is placed under research restriction, J.P. Morgan may remove the stock from the AFL pursuant to applicable law and/or J.P. Morgan policy without any further notice. Important disclosures, including price charts for all companies under coverage for at least one year, are available through the search function on J.P. Morgan's website https://mm.jpmorgan.com/disclosures/company. Total returns exclude commissions. Past results are not indicative of future performance. Additional information available upon request. Japanese stocks included in the Asia AFL are chosen according to the Asia AFL methodology above, independent of the Japanese Analyst Focus List (Japan AFL). Japan stocks are not included at the Country Team level, but may appear in Sector Team selections. To view the Japan AFL and its methodology, click here: Japan Analyst Focus List (Japan AFL)
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Companies Discussed in This Report (all prices in this report as of market close on 20 February 2014, unless otherwise indicated) CDL Hospitality Trusts (CDLT.SI/S$1.61[19 February 2014]/Neutral), CHIYODA (6366) (6366.T/1506/Overweight), CJ Cheiljedang (097950.KS/W266000/Underweight), CJ O Shopping (035760.KQ/W379400/Overweight), COSCO Corporation (COSC.SI/S$0.71[19 February 2014]/Underweight), CapitaMalls Asia (CMAL.SI/S$1.83[19 February 2014]/Overweight), DBS Group Holdings (DBSM.SI/S$16.56[19 February 2014]/Overweight), Dongbu Insurance (005830.KS/W52500/Underweight), Dyna-Mac Holdings Ltd (DMHL.SI/S$0.39[19 February 2014]/Overweight), Ezion Holdings Ltd (EZHL.SI/S$2.31[19 February 2014]/Overweight), First Resources Limited (FRLD.SI/S$2.23[19 February 2014]/Overweight), Genting Singapore (GENS.SI/S$1.39[19 February 2014]/Underweight), Global Logistic Properties Ltd (GLPL.SI/S$2.91[19 February 2014]/Overweight), Golden Agri-Resources Ltd (GAGR.SI/S$0.55[19 February 2014]/Neutral), Hanjin Shipping Co Ltd (117930.KS/W6940/Underweight), Hankook Tire (161390.KS/W61700/Overweight), Hutchison Port Holdings Trust (HPHT.SI/$0.63/Overweight), Hyundai Department Store (069960.KS/W145000/Overweight), Hyundai Development Company (012630.KS/W30700/Overweight), Hyundai Mipo Dockyard (010620.KS/W163000/Overweight), Hyundai Motor Company (005380.KS/W222000/Overweight), Hyundai Steel Company (004020.KS/W78000/Overweight), Indofood Agri Resources Ltd (IFAR.SI/S$0.84[19 February 2014]/Underweight), Jardine Strategic Holdings Ltd (JSH.SI/$32.97[19 February 2014]/Underweight), KB Financial Group (105560.KS/W37300/Overweight), Keppel Corporation (KPLM.SI/S$10.51[19 February 2014]/Overweight), Korea Aerospace Industries (047810.KS/W30750/Overweight), LG Display (034220.KS/W25600/Overweight), Lotte Chemical Corp (011170.KS/W217000/Underweight), M1 (MONE.SI/S$3.38[19 February 2014]/Overweight), Mapletree Industrial Trust (MAPI.SI/S$1.34[19 February 2014]/Neutral), Mewah International Inc (MEWI.SI/S$0.47[19 February 2014]/Underweight), Mitsui Engineering & Shipbuilding (7003) (7003.T/197/Overweight), Naver (035420.KS/W689000/Overweight), Neptune Orient Lines (NOL) (NEPS.SI/S$1.00[19 February 2014]/Overweight), Nidec (6594) (6594.T/11930/Overweight), S-Oil Corp (010950.KS/W65900/Neutral), SANY Heavy Equipment International Holdings Company (0631.HK/HK$2.08/Neutral), SK Hynix (000660.KS/W38800/Overweight), SK Innovation Co Ltd (096770.KS/W134500/Overweight), Samsung Card (029780.KS/W33850/Overweight), Samsung Engineering (028050.KS/W75300/Underweight), Samsung Fire & Marine Insurance (000810.KS/W230000/Overweight), Samsung Life Insurance (032830.KS/W101000/Overweight), Sapphire Technology (123260.KQ/W41900/Overweight), Sembcorp Marine (SCMN.SI/S$4.09[19 February 2014]/Neutral), Seoul Semiconductor (046890.KQ/W46050/Overweight), Shinhan Financial Group (055550.KS/W44000/Overweight), Shinko Electric Industries (6967) (6967.T/740/Neutral), Singapore Exchange (SGXL.SI/S$6.92[19 February 2014]/Overweight), Zhengzhou Coal Mining Machinery Group Company (0564.HK/HK$4.81/Neutral)
Disclosures This report is a product of the research department's Global Equity Derivatives and Quantitative Strategy group. Views expressed may differ from the views of the research analysts covering stocks or sectors mentioned in this report. Structured securities, options, futures and other derivatives are complex instruments, may involve a high degree of risk, and may be appropriate investments only for sophisticated investors who are capable of understanding and assuming the risks involved. Because of the importance of tax considerations to many option transactions, the investor considering options should consult with his/her tax advisor as to how taxes affect the outcome of contemplated option transactions. Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or intervention.
Important Disclosures
Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for CJ O Shopping, Global Logistic Properties Ltd, Hyundai Motor Company, Neptune Orient Lines (NOL), Shinhan Financial Group within the past 12 months.
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Director: A senior employee, executive officer or director of JPMorgan Chase & Co. and/or J.P. Morgan is a director and/or officer of Jardine Strategic Holdings Ltd. Analyst Position: The following analysts (and/or their associates or household members) own a long position in the shares of Global Logistic Properties Ltd: Adrian Mowat. Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: CapitaMalls Asia, CJ Cheiljedang, CJ O Shopping, COSCO Corporation, DBS Group Holdings, Dongbu Insurance, First Resources Limited, Genting Singapore, Global Logistic Properties Ltd, Hanjin Shipping Co Ltd, Hyundai Mipo Dockyard, Hyundai Motor Company, Hyundai Steel Company, Jardine Strategic Holdings Ltd, KB Financial Group, Keppel Corporation, LG Display, Lotte Chemical Corp, Mitsui Engineering & Shipbuilding (7003), Naver, Neptune Orient Lines (NOL), Nidec (6594), Samsung Card, Samsung Engineering, Samsung Fire & Marine Insurance, Samsung Life Insurance, Sembcorp Marine, Shinhan Financial Group, Shinko Electric Industries (6967), Singapore Exchange, SK Hynix, SK Innovation Co Ltd, Hankook Tire, S-Oil Corp, Zhengzhou Coal Mining Machinery Group Company, Hutchison Port Holdings Trust.
Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: CapitaMalls Asia, CJ O Shopping, DBS Group Holdings, Global Logistic Properties Ltd, Hyundai Motor Company, Jardine Strategic Holdings Ltd, KB Financial Group, Naver, Neptune Orient Lines (NOL), Shinhan Financial Group, Zhengzhou Coal Mining Machinery Group Company.
Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-investment-banking, securities-related: CJ Cheiljedang, COSCO Corporation, DBS Group Holdings, Dongbu Insurance, First Resources Limited, Global Logistic Properties Ltd, Hyundai Mipo Dockyard, Hyundai Motor Company, Hyundai Steel Company, Jardine Strategic Holdings Ltd, KB Financial Group, Keppel Corporation, LG Display, Lotte Chemical Corp, Mitsui Engineering & Shipbuilding (7003), Neptune Orient Lines (NOL), Nidec (6594), Samsung Engineering, Samsung Fire & Marine Insurance, Samsung Life Insurance, Sembcorp Marine, Shinhan Financial Group, Shinko Electric Industries (6967), Singapore Exchange, SK Innovation Co Ltd, Hankook Tire, S-Oil Corp.
Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-securities-related: DBS Group Holdings, First Resources Limited, Hyundai Motor Company, Jardine Strategic Holdings Ltd, KB Financial Group, Nidec (6594), Samsung Life Insurance, Shinhan Financial Group, SK Innovation Co Ltd, Hankook Tire.
Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation from investment banking CapitaMalls Asia, CJ O Shopping, DBS Group Holdings, Global Logistic Properties Ltd, Hyundai Motor Company, Jardine Strategic Holdings Ltd, KB Financial Group, Naver, Neptune Orient Lines (NOL), Shinhan Financial Group, Zhengzhou Coal Mining Machinery Group Company.
Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from CapitaMalls Asia, CJ O Shopping, DBS Group Holdings, Global Logistic Properties Ltd, Hyundai Motor Company, Jardine Strategic Holdings Ltd, KB Financial Group, Naver, Neptune Orient Lines (NOL), Nidec (6594), Shinhan Financial Group, Zhengzhou Coal Mining Machinery Group Company.
Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from CJ Cheiljedang, COSCO Corporation, DBS Group Holdings, Dongbu Insurance, First Resources Limited, Global Logistic Properties Ltd, Hyundai Mipo Dockyard, Hyundai Motor Company, Hyundai Steel Company, Jardine Strategic Holdings Ltd, KB Financial Group, Keppel Corporation, LG Display, Lotte Chemical Corp, Mitsui Engineering & Shipbuilding (7003), Neptune Orient Lines (NOL), Nidec (6594), Samsung Engineering, Samsung Fire & Marine Insurance, Samsung Life Insurance, Sembcorp Marine, Shinhan Financial Group, Shinko Electric Industries (6967), Singapore Exchange, SK Innovation Co Ltd, Hankook Tire, S-Oil Corp.
Broker: J.P. Morgan Securities plc acts as Corporate Broker to Jardine Strategic Holdings Ltd.
MSCI: The MSCI sourced information is the exclusive property of MSCI. Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or used to create any financial products, including any indices. This information is provided on an 'as is' basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI and the MSCI indexes are services marks of MSCI and its affiliates. Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing [email protected] with your request. J.P. Morgans Strategy, Technical, and Quantitative Research teams may
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screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail [email protected]. Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return is compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research website, www.jpmorganmarkets.com. J.P. Morgan Equity Research Ratings Distribution, as of January 1, 2014
Overweight (buy) 43% 57% 43% 75% Neutral (hold) 45% 49% 50% 66% Underweight (sell) 12% 36% 7% 59%
J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients*
*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.
Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst or your J.P. Morgan representative, or email [email protected]. Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues. Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US affiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMS, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account. Conflict of Interest This research contains the views, opinions and recommendations of J.P. Morgan research analysts. J.P. Morgan has adopted research conflict of interest policies, including prohibitions on non-research personnel influencing the content of research. Research analysts still may speak to J.P. Morgan trading desk personnel in formulating views, opinions and recommendations. Trading desks may trade, or have traded, as principal on the basis of the research analysts views and research. Therefore, this research may not be independent from the proprietary interests of J.P. Morgan trading desks which may conflict with your interests. As a general matter, J.P. Morgan and/or its affiliates trade as principal in connection with making markets in fixed income securities, commodities and other investment instruments discussed in research reports.
Other Disclosures
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